Large NW (£10m) due to inheritance, with private bank? Time to move?

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
CR7Siuuu
Posts: 9
Joined: Fri Feb 25, 2022 7:30 am

Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by CR7Siuuu »

Hi there

I had a tragedy in my family a few years ago and was left some money from a family member. This is a large amount around £10m. I have used some to purchase a home outright which I do not regret one bit as it gives me peace of mind. This propelled me into HNW as before I was just a regular person (27 years old) working a 40k a year job. So as it stands my NW is currently well over £10.17m (not including home)

When the family member passed they had the majority of their net worth (£40m) with a swiss private bank, which they were obviously happy with. Naturally the estate was settled, pots were divided between other family members and we went our seperate ways however I did stay with said bank as at that time I knew nothing about investments, finances and it was like a totally different world. It made sense for them to handle things whilst I dealt with grief and started to learn more about investing. Then I found Bogleheads...

I do take a small withdrawal from my portfolio, less than 1% annually. With this withdrawal and the knowledge I have gathered and researched since their death I have been creating my own Boglehead portfolio with Vanguard. Low cost, globally diversified index funds. This is currently around £171,000.

No bonds in my personal brokerage at this stage (27 years old). It feels empowering to be responsibile for my money and to take ownership of it with minimal costs. Can't quite say the same for the private bank.

With the bank I am getting charged around 0.8%. Plus any transaction fees, plus their stock picks. I am under an aggressive portfolio with them, (70/20/10) (Equities/Bonds/Alternative) however some of the equities funds they have me in are just huge overlaps. For example there's FTSE 100 / FTSE 250, then the individual stock picks within these ETF's. Plus so many other random equitie funds it actually blows my mind. I'm reluctant to work out just how much overlap there is cause it's killing me inside a bit and I know there's a tonne.

I understand private banks do offer a different service and some people value that, but other than my every 2 month phone call check ins, I really dont get anything different I couldnt do myself. I even asked about estate planning etc recently and was just referred to a lawyer. Am I still seen as small fish for this big bank, not high NW enough to really care?

I guess what I'm asking is it wise to manage this size portfolio myself in a bogle style approach? I'm still new to the investing game, only a few years under my belt but I feel over the next 20-30 years the £ difference between managing this windfall myself vs leaving them to do it could be absolutely monumental.

I must note I am committed to growing this wealth, taking a very small withdrawal (less than 1%) and growing this for future generations. I want to make sure my future, my families future is secure and won't squander it. I fear the private bank is squandering the very thing they're supposed to grow. I've kept some details vague on purpose as the internet can be a small place. I have low monthly outgoings and track my expenditure.

As it stands currently:

Net Worth:
Private bank managed: £10m. (70/20/10) (Equities/Bonds/Alternative)
Vanguard account: £171k (100) (Equities)
27 years old

I'd love to hear boglehead advice on how you'd proceed with this. I don't want to run before I can walk but it is hard to turn a blind eye after you've opened your eyes to the financial world and how they make their money.

Thanks for your time
AlohaJoe
Posts: 6531
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by AlohaJoe »

It doesn't seem like you're getting any benefit for what you're paying them.

And it sounds like you are paying them as much as you are spending on yourself, which makes it sound ever crazier.

Obviously Bogleheads are going to be biased towards DIY.

You can always take baby steps and transfer 50% out and manage yourself for a while if that makes the transition easier.

Advisor's real benefit is usually in preventing behavioural errors but you can get that cheaper somewhere else if you still want it.
jg12345
Posts: 267
Joined: Fri Dec 11, 2020 1:03 pm

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by jg12345 »

Hi OP,
Agree with previous poster, on a possible glidepath.

One more point: I wonder if alternatives is an added value? I am not sure what's in there, but if those are funds/investments for which access is only available via private banking, then that could be the only reason for keeping them.

Best
Valuethinker
Posts: 45572
Joined: Fri May 11, 2007 11:07 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by Valuethinker »

CR7Siuuu wrote: Thu Sep 22, 2022 2:26 am Hi there

I had a tragedy in my family a few years ago and was left some money from a family member. This is a large amount around £10m. I have used some to purchase a home outright which I do not regret one bit as it gives me peace of mind. This propelled me into HNW as before I was just a regular person (27 years old) working a 40k a year job. So as it stands my NW is currently well over £10.17m (not including home)

When the family member passed they had the majority of their net worth (£40m) with a swiss private bank, which they were obviously happy with. Naturally the estate was settled, pots were divided between other family members and we went our seperate ways however I did stay with said bank as at that time I knew nothing about investments, finances and it was like a totally different world. It made sense for them to handle things whilst I dealt with grief and started to learn more about investing. Then I found Bogleheads...

I do take a small withdrawal from my portfolio, less than 1% annually. With this withdrawal and the knowledge I have gathered and researched since their death I have been creating my own Boglehead portfolio with Vanguard. Low cost, globally diversified index funds. This is currently around £171,000.

No bonds in my personal brokerage at this stage (27 years old). It feels empowering to be responsibile for my money and to take ownership of it with minimal costs. Can't quite say the same for the private bank.

With the bank I am getting charged around 0.8%. Plus any transaction fees, plus their stock picks. I am under an aggressive portfolio with them, (70/20/10) (Equities/Bonds/Alternative) however some of the equities funds they have me in are just huge overlaps. For example there's FTSE 100 / FTSE 250, then the individual stock picks within these ETF's. Plus so many other random equitie funds it actually blows my mind. I'm reluctant to work out just how much overlap there is cause it's killing me inside a bit and I know there's a tonne.

I understand private banks do offer a different service and some people value that, but other than my every 2 month phone call check ins, I really dont get anything different I couldnt do myself. I even asked about estate planning etc recently and was just referred to a lawyer. Am I still seen as small fish for this big bank, not high NW enough to really care?

I guess what I'm asking is it wise to manage this size portfolio myself in a bogle style approach? I'm still new to the investing game, only a few years under my belt but I feel over the next 20-30 years the £ difference between managing this windfall myself vs leaving them to do it could be absolutely monumental.

I must note I am committed to growing this wealth, taking a very small withdrawal (less than 1%) and growing this for future generations. I want to make sure my future, my families future is secure and won't squander it. I fear the private bank is squandering the very thing they're supposed to grow. I've kept some details vague on purpose as the internet can be a small place. I have low monthly outgoings and track my expenditure.

As it stands currently:

Net Worth:
Private bank managed: £10m. (70/20/10) (Equities/Bonds/Alternative)
Vanguard account: £171k (100) (Equities)
27 years old

I'd love to hear boglehead advice on how you'd proceed with this. I don't want to run before I can walk but it is hard to turn a blind eye after you've opened your eyes to the financial world and how they make their money.

Thanks for your time
You need an accountant to do your taxes. You need a lawyer to do your will and medical Powers of Attorney. Please do this even at 27. Depending on legal system (Civil Code v Common Law) of the country you live in, dying intestate is a nightmare.

You don't need a private bank, HOWEVER:

- it's useful to have someone to call if there's a banking problem. In the UK if you have £500k you seem to qualify for "Premier" banking services. That's worth having

- given the scale of your wealth, make sure you have banking relationships with at least 2 banks. In case something horrible happens with one account (financial institutional failure etc)

They are clearly providing Wealth Management services:

- that can be helpful for tax but you really need a good accountant on your side

- they will argue that they give you access to "alternatives". But it's questionable whether Alternatives actually do well enough to justify the higher costs. This is one advantage of the account, however.

On your asset allocation

- if I had $10m, I'd make sure I had plenty of inflation linked bonds issued by high credit rating countries. TIPS for example. At least 20% of your portfolio

There was a thread here, long running, about "Do you need to take risk"? William Bernstein has also written something about this. The basic point is that when one hits "the number" then there's no need to take additional risk (but don't ignore the effects of inflation in the long term).

I would probably have something like:

- $1m in personal residence (outside of London and a few other big cities, in Europe that should buy a decent apartment or small house) - that's really a hedge against rental inflation. In London you won't get a "decent" property for under £1m unless you go fairly far out or make compromises as to area etc. By which I mean 3 bedroom terraced house or large apartment. I would avoid brand new builds in London (tend to be overpriced). (Mind: $1m is pretty close to £1m right now)

- $1-2m in cash and cash like held in my home currency (unless I live in an unstable state)

- $2-4m in inflation linked bonds (arguably one could have nominal bonds (ie normal ones) + inflation linked in a 50-50 mix)

- balance in stocks - global quoted equity fund or Developed/ Emerging Markets 90/10 (to minimize the China weighting)

My thought would be:

- you want to prepare for the 1970s - high inflation, stocks and bonds performed badly (real estate did well, inflation linked bonds would have done well but didn't exist). The 1970s were horrible for stocks and at one point the London index was down over 80%

- conversely post 2009 saw debt-deflation spiral starting in the Eurozone, but never fully occurred (Greece, Spain etc). Some places took it pretty hard (Greek crisis). Nominal bonds & secure bank deposits hedge against this. Stocks don't do well (Lehman Crisis and then Grexit crisis).

- most likely the world muddles along, in which case say 50% stocks will do fine - will grow wealth and provide real returns over time

You also need to think about life goals: does pure hedonism in retirement suit? If not, what kind of work would you find most stimulating but not overly stressful? Where do you want to live? Do you want to also own a 2nd home in (usually) a setting in more southern Europe?
TedSwippet
Posts: 4395
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by TedSwippet »

CR7Siuuu wrote: Thu Sep 22, 2022 2:26 am I guess what I'm asking is it wise to manage this size portfolio myself in a bogle style approach? I'm still new to the investing game, only a few years under my belt but I feel over the next 20-30 years the £ difference between managing this windfall myself vs leaving them to do it could be absolutely monumental.
Difficult to say without a full review.

The bank could (perhaps!) be managing your portfolio as a set of rarely traded stocks that broadly track indexes. For larger portfolios, holding a spread of individual shares that broadly mimic one or more indexes can be both cost-efficient and tax-efficient. Larger portfolios because the trading cost for buying tens or even hundreds of individual stocks is flat; okay for £10m, but doing that for a £10k portfolio would wipe it out. If you're paying 0.8% for all of that, along with some tax management to optimise your capital gains and dividend taxes, it might be okay. It's a weight off your shoulders, and a fund or ETF portfolio would cost you around 0.25% in fund charges plus some relatively small platform charge, so it's not like that alternative is free.

On the other hand, the bank could (perhaps) be using your portfolio as a cash cow. A handy way to have you buy any random oddments of stocks, speculative purchases and so on, with complete discretion and without regard for any of the tax consequences to you, such as capital gains tax. In that case, managing it yourself would be the better option.

In both cases though, don't underestimate the work involved in running even an entirely passive funds portfolio all by yourself. You will have to tangle with capital gains tax rules whenever you rebalance or sell, and with dividend tax rules for each dividend you receive. Optimising your tax position takes work; it's not just a matter of sitting around and watching the money accrue. You also have an inheritance risk, so something else to consider. (Family trusts? Not my area.)

A good middle ground might be to manage the money yourself, but following or in tandem with advice from a trusted and impartial flat-fee IFA. Finding the right individual could be tricky, but if done right that should sandbag you against making large mistakes through lack of knowledge.

Finally, what would be the tax cost of moving everything from where it is now into a simpler index fund format? If you have a lot of unrealised capital gains in your current portfolio, uprooting that could cost you a lot in capital gains tax. Capital gains taxes create a form of 'lock in' effect, where it can sometimes be better to stick with a less optimal set of investments than to take a 10-20% tax 'haircut' to move to something more efficient. So you'll want to look carefully at your exposure here.
Topic Author
CR7Siuuu
Posts: 9
Joined: Fri Feb 25, 2022 7:30 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by CR7Siuuu »

TedSwippet wrote: Thu Sep 22, 2022 3:46 am
CR7Siuuu wrote: Thu Sep 22, 2022 2:26 am I guess what I'm asking is it wise to manage this size portfolio myself in a bogle style approach? I'm still new to the investing game, only a few years under my belt but I feel over the next 20-30 years the £ difference between managing this windfall myself vs leaving them to do it could be absolutely monumental.
Difficult to say without a full review.

The bank could (perhaps!) be managing your portfolio as a set of rarely traded stocks that broadly track indexes. For larger portfolios, holding a spread of individual shares that broadly mimic one or more indexes can be both cost-efficient and tax-efficient. Larger portfolios because the trading cost for buying tens or even hundreds of individual stocks is flat; okay for £10m, but doing that for a £10k portfolio would wipe it out. If you're paying 0.8% for all of that, along with some tax management to optimise your capital gains and dividend taxes, it might be okay. It's a weight off your shoulders, and a fund or ETF portfolio would cost you around 0.25% in fund charges plus some relatively small platform charge, so it's not like that alternative is free.

On the other hand, the bank could (perhaps) be using your portfolio as a cash cow. A handy way to have you buy any random oddments of stocks, speculative purchases and so on, with complete discretion and without regard for any of the tax consequences to you, such as capital gains tax. In that case, managing it yourself would be the better option.

In both cases though, don't underestimate the work involved in running even an entirely passive funds portfolio all by yourself. You will have to tangle with capital gains tax rules whenever you rebalance or sell, and with dividend tax rules for each dividend you receive. Optimising your tax position takes work; it's not just a matter of sitting around and watching the money accrue. You also have an inheritance risk, so something else to consider. (Family trusts? Not my area.)

A good middle ground might be to manage the money yourself, but following or in tandem with advice from a trusted and impartial flat-fee IFA. Finding the right individual could be tricky, but if done right that should sandbag you against making large mistakes through lack of knowledge.

Finally, what would be the tax cost of moving everything from where it is now into a simpler index fund format? If you have a lot of unrealised capital gains in your current portfolio, uprooting that could cost you a lot in capital gains tax. Capital gains taxes create a form of 'lock in' effect, where it can sometimes be better to stick with a less optimal set of investments than to take a 10-20% tax 'haircut' to move to something more efficient. So you'll want to look carefully at your exposure here.
Thanks for your reply.

Sorry, I should have stated, I live in a jurisdiction where there is no CGT. Only income tax on dividends. I believe this simplify matters considerably.

In regards to the equities held, I have around twenty or so individual stocks, and the rest ETF/funds. I guess to mimic a world tracker? I could post the list here but I don't want to doxx myself.
Valuethinker
Posts: 45572
Joined: Fri May 11, 2007 11:07 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by Valuethinker »

CR7Siuuu wrote: Thu Sep 22, 2022 4:17 am
TedSwippet wrote: Thu Sep 22, 2022 3:46 am
CR7Siuuu wrote: Thu Sep 22, 2022 2:26 am I guess what I'm asking is it wise to manage this size portfolio myself in a bogle style approach? I'm still new to the investing game, only a few years under my belt but I feel over the next 20-30 years the £ difference between managing this windfall myself vs leaving them to do it could be absolutely monumental.
Difficult to say without a full review.

The bank could (perhaps!) be managing your portfolio as a set of rarely traded stocks that broadly track indexes. For larger portfolios, holding a spread of individual shares that broadly mimic one or more indexes can be both cost-efficient and tax-efficient. Larger portfolios because the trading cost for buying tens or even hundreds of individual stocks is flat; okay for £10m, but doing that for a £10k portfolio would wipe it out. If you're paying 0.8% for all of that, along with some tax management to optimise your capital gains and dividend taxes, it might be okay. It's a weight off your shoulders, and a fund or ETF portfolio would cost you around 0.25% in fund charges plus some relatively small platform charge, so it's not like that alternative is free.

On the other hand, the bank could (perhaps) be using your portfolio as a cash cow. A handy way to have you buy any random oddments of stocks, speculative purchases and so on, with complete discretion and without regard for any of the tax consequences to you, such as capital gains tax. In that case, managing it yourself would be the better option.

In both cases though, don't underestimate the work involved in running even an entirely passive funds portfolio all by yourself. You will have to tangle with capital gains tax rules whenever you rebalance or sell, and with dividend tax rules for each dividend you receive. Optimising your tax position takes work; it's not just a matter of sitting around and watching the money accrue. You also have an inheritance risk, so something else to consider. (Family trusts? Not my area.)

A good middle ground might be to manage the money yourself, but following or in tandem with advice from a trusted and impartial flat-fee IFA. Finding the right individual could be tricky, but if done right that should sandbag you against making large mistakes through lack of knowledge.

Finally, what would be the tax cost of moving everything from where it is now into a simpler index fund format? If you have a lot of unrealised capital gains in your current portfolio, uprooting that could cost you a lot in capital gains tax. Capital gains taxes create a form of 'lock in' effect, where it can sometimes be better to stick with a less optimal set of investments than to take a 10-20% tax 'haircut' to move to something more efficient. So you'll want to look carefully at your exposure here.
Thanks for your reply.

Sorry, I should have stated, I live in a jurisdiction where there is no CGT. Only income tax on dividends. I believe this simplify matters considerably.

In regards to the equities held, I have around twenty or so individual stocks, and the rest ETF/funds. I guess to mimic a world tracker? I could post the list here but I don't want to doxx myself.
It actually shouldn't be a gross violation of privacy (except to a crooked employee of the bank you use?).

There is a benefit to you in avoiding dividends but it gets complicated maintaining that position *unless* there are specific low dividend ETFs? I would probably accept the tax drag associated with paying dividends in return for greater diversification. For example in 2021 it was all about tech, tech ruled the world, 7-8 of 10 largest cos were tech (including Tesla) etc. Then market sentiment turned and energy prices went up, and the top performing sector in 2022 became Energy (oil & gas, also the coal mining operations of leading mining cos).

If you took a look at Lifestyle or Target Date funds on Vanguard UK you can get an idea of potential asset allocations. I think because of marketing considerations there's too much UK equity exposure (vs world index weightings where the UK is much less than 10% of total world markets). But, otherwise, it's a guide.

I really would not pay someone 0.8% to pick 20 stocks for you. You shouldn't hold individual stocks (as opposed to ETFs) but if you did, it would be in the interests of constructing a low dividend portfolio. But you'd wind up owning Amazon, Alphabet (Google), Meta (FB) & Tesla but not Microsoft or Apple. Which doesn't have a big logical sense.

The one individual stock I might continue to own is Berkshire Hathaway (Warren Buffett). When Buffett dies, I expect it will be broken up, and release a lot of shareholder value. It also pays no dividends (Buffett wrote a letter to shareholders explaining why, which is famous and worth reading). It's about the world's 7-8th largest company by market capitalisation.

(Others would be Shell, Exxon Mobil, BHP & Rio Tinto & Glencore in the mining sector ie companies where the leading company in the sector is highly diversified & has a "pure exposure" to underlying factors (oil price, minerals prices)).
User avatar
AnnetteLouisan
Posts: 4672
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by AnnetteLouisan »

Going from L40 income to L10 mil net worth at 27? I’m a minority view on here, and certainly no expert, but I don’t think it would be a bad choice to leave the money where it is right now and spend a year educating yourself in your free time so that whatever you do you are absolutely sure. Although with L10 mil at age 27 I’d think you’d have better uses for your free time. My suggestion is to take it slow. Also read, “Managing a Windfall” and the rest of the BH wiki. Good luck to you! Ps, don’t tell anyone.
Valuethinker
Posts: 45572
Joined: Fri May 11, 2007 11:07 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by Valuethinker »

AnnetteLouisan wrote: Thu Sep 22, 2022 6:36 am Going from L40 income to L10 mil net worth at 27? I’m a minority view on here, and certainly no expert, but I don’t think it would be a bad choice to leave the money where it is right now and spend a year educating yourself in your free time so that whatever you do you are absolutely sure. Although with L10 mil at age 27 I’d think you’d have better uses for your free time. My suggestion is to take it slow. Also read, “Managing a Windfall” and the rest of the BH wiki. Good luck to you! Ps, don’t tell anyone.
AnnetteL has made some very good points.

If someone posts "I just won the lottery for $10m" or any other windfall, it's pretty standard advice (here) to:

- do nothing for a year
- tell no one (this is important. Being rich is like being famous, your friends may not be your friends. Conversely it can alienate old friends)

My only general comment is a large equity portfolio is high risk. One can easily imagine events which would cause stocks to drop another 50%. My recommendation would be to explore owning a substantial position in inflation-linked bonds. As a bedrock of safety.

I would also generally say serious consideration of "what then, is the good life?" should be made over time-- the good life for me [ie you]. Most of us "work for the man" so that we have sufficient funds to enjoy a comfortable lifestyle and to meet our needs in retirement, leave something to our children etc. That inevitably means making compromises as to how we spend our time, where we live, commuting, taking stick at work from idiotic colleagues and superiors, etc.

Most of us dream about the day when we have $10m and can "tell the man to stick it". Conversely some of us, by design or luck, fell into jobs we love and we couldn't really imagine doing anything else.

I would note that a lot of people retire and find their lives empty. It's easy to know that you want to tell the job to shove it, it's harder to know what comes next.

I know of children of very wealthy people who seem basically to live shallow hedonistic lives, that don't satisfy them. If you are rich it's very easy for your children (or their friends) to be very screwed up. I pity the children of the famous.

Also that you have a very long time in which to make this money last. 6-7 decades. Lynda Gratton and Richard Scott of the London Business School wrote a book "the 100 year life" which is worth a look. But don't scale up your cost of living too much. One $100k sportscar is OK. A succession of Ferraris will burn through that money very quickly.

One has to have a sense about what are worthwhile goals for the rest of one's life. What is worthwhile? Charity? Public service? Mountain biking every morning? Skiing every day? Leaving a large inheritance to your children? You won't necessarily find the "right" answer but this thinking will help you avoid the wrong answers. Of course, what you want will change over time, too.
random_walker_77
Posts: 1974
Joined: Tue May 21, 2013 8:49 pm

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by random_walker_77 »

I'd recommend you read "What your financial advisor isn't telling you." Here are some choice quotes from the book. Basically, you need to continue educating yourself, even if only to exercise proper oversight of your banker. It sounds like you're taking a responsible approach to the funds and I'd agree you don't need to be paying 0.8%.

You do need to pay for services, like an accountant, a tax adviser, and perhaps a financial planner. Pay for them when needed, and even at £500/hr, it's a bargain compared to 0.8%.
pennywiser
Posts: 33
Joined: Sat Jul 16, 2022 1:54 pm
Location: UK

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by pennywiser »

It would be good to know how your portfolio performed until now, that would help to evaluate if you are getting value for your money. E.g. are you getting above market returns and/or low volatility. Also it would be good to know total expense ratio, so management + transactions fees.
And I would press the bank to explain to me why is the porfolio so complex. There might be a good reason for it but they should be able to explain it to you is a way that a reasonably educated person would understand it. If they can't explain it then I would strongly suspect that they only do it to skin you on fees.
CR7Siuuu wrote: Thu Sep 22, 2022 2:26 am I'd love to hear boglehead advice on how you'd proceed with this.
Ultimately you can be as involved as much or as little as you want.
I personally would determine my risk tolerance (e.g. how would I feel if my porfolio of 100% equity is 50% down), then park it in a simple two fund portfolio of world stock and bonds and rebalance regularly. Or park it in a one multi asset fund (e.g. 60/40) and you never have to look at it again if you don't want to, especially if you are only withdrwaing 1%. Althought I definitely recommended keeping educating about the money and investing.
Overall, managing £10m can be a full time job if you want. Or it can be as simple as managing £10k...
er999
Posts: 384
Joined: Wed Nov 05, 2008 11:00 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by er999 »

I’d say with 10 million and expenses of 40k you should have plenty of money and no rush to move elsewhere. Unless you’ve been reading about personal finance and investing on your own for years I’d consider waiting 1 year before moving money or doing any major spending.

Most of us suspect you could do better elsewhere but you don’t want to make any behavioral mistakes like too aggressive investing, selling in a downturn etc. Even if they are charging a lot at 0.8% 1-2 years of those fees won’t make a difference in the long run (40 years of those fees will though)

I think your main dilemma is how to spend your time now that work is optional and avoiding huge spending like drugs, divorces, or picking up an insanely expensive hobby like racing cars. You’re sort of in the situation of a lottery winner and many screw up their lives rather than having the money be a big benefit.
seajay
Posts: 803
Joined: Sat May 01, 2021 3:26 pm

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by seajay »

CR7Siuuu wrote: Thu Sep 22, 2022 2:26 amWith the bank I am getting charged around 0.8%. Plus any transaction fees, plus their stock picks. I am under an aggressive portfolio with them, (70/20/10) (Equities/Bonds/Alternative) however some of the equities funds they have me in are just huge overlaps. For example there's FTSE 100 / FTSE 250
The 'overlap' I suggest is lower than you might believe. The FT100 is the London listed 100 largest (market cap) stocks, with much of earnings (70%+) sourced from foreign/global. The FT250 is the next 250 largest (101 down to 350 market cap ranked, or thereabouts as its not a 100% precise index), which is more 50/50 Pound/foreign earnings based, and includes a extensive range of Investment Trusts that in themselves diversify/invest broadly. More like a small cap value type holding in US scale.

Supplemented with some individual 'bets' along with bonds and alternatives and the private banks choice seems quite reasonable/usual. If that also includes tax/other risk reduction benefits then the 0.8% yearly fee might be reasonable compared to going DIY and ending up with a much heavier unexpected cost/loss. Having a account manager phone you up to say something like "in view of xyz recent changes it might be worth moving into abc" alleviates you having to keep on top of things yourself and perhaps missing something or making poor decisions.

I'd leave it as-is, see if you want to develop the very deep knowledge/understanding to maybe save 0.8%/year, or whether you prefer the comfort of 'not having to bother' as the net earnings/growth exceed your spending/withdrawals such that you're seeing wealth expansion anyway.
random_walker_77
Posts: 1974
Joined: Tue May 21, 2013 8:49 pm

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by random_walker_77 »

Regarding why the portfolio is complex, I was once persuaded to invest a relatively small amount with a "wealth manager" at UBS. I was at a hot little company, and they figured (correctly) that I would be worth a lot more in the future. Despite it being a small amount, they sliced it up into over a dozen funds (in retrospect, some were real stinkers). The book I linked earlier claimed that this is often done to make things look more complex and intimidating, which is helpful if you're a financial advisor. Remember, you're not hiring a financial advisor to pick superior funds or to beat the market (on a risk-adjusted basis). The biggest benefit is that a financial advisor protects you from yourself. That said, 80K/yr is a pretty big bill...
Valuethinker
Posts: 45572
Joined: Fri May 11, 2007 11:07 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by Valuethinker »

random_walker_77 wrote: Thu Sep 22, 2022 5:43 pm Regarding why the portfolio is complex, I was once persuaded to invest a relatively small amount with a "wealth manager" at UBS. I was at a hot little company, and they figured (correctly) that I would be worth a lot more in the future. Despite it being a small amount, they sliced it up into over a dozen funds (in retrospect, some were real stinkers). The book I linked earlier claimed that this is often done to make things look more complex and intimidating, which is helpful if you're a financial advisor. Remember, you're not hiring a financial advisor to pick superior funds or to beat the market (on a risk-adjusted basis). The biggest benefit is that a financial advisor protects you from yourself. That said, 80K/yr is a pretty big bill...
The problem (it took me a very long time to "get" this) is that it is 80,000 * (1+annual return)^ years. i.e. *compounded*. So in 24 years at 3% real returns that's doubled what it cost you.

I am paying 1.85% for reasons which are too complex and painful to discuss here. There are optimal arrangements and there is what is possible in tax law & institutional arrangements etc. Post 2008, the world got a *lot* tighter (it actually started with the Anti Money Laundering post 2001).
Valuethinker
Posts: 45572
Joined: Fri May 11, 2007 11:07 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by Valuethinker »

seajay wrote: Thu Sep 22, 2022 4:15 pm
CR7Siuuu wrote: Thu Sep 22, 2022 2:26 amWith the bank I am getting charged around 0.8%. Plus any transaction fees, plus their stock picks. I am under an aggressive portfolio with them, (70/20/10) (Equities/Bonds/Alternative) however some of the equities funds they have me in are just huge overlaps. For example there's FTSE 100 / FTSE 250
The 'overlap' I suggest is lower than you might believe. The FT100 is the London listed 100 largest (market cap) stocks, with much of earnings (70%+) sourced from foreign/global. The FT250 is the next 250 largest (101 down to 350 market cap ranked, or thereabouts as its not a 100% precise index), which is more 50/50 Pound/foreign earnings based, and includes a extensive range of Investment Trusts that in themselves diversify/invest broadly. More like a small cap value type holding in US scale.

Supplemented with some individual 'bets' along with bonds and alternatives and the private banks choice seems quite reasonable/usual. If that also includes tax/other risk reduction benefits then the 0.8% yearly fee might be reasonable compared to going DIY and ending up with a much heavier unexpected cost/loss. Having a account manager phone you up to say something like "in view of xyz recent changes it might be worth moving into abc" alleviates you having to keep on top of things yourself and perhaps missing something or making poor decisions.

I'd leave it as-is, see if you want to develop the very deep knowledge/understanding to maybe save 0.8%/year, or whether you prefer the comfort of 'not having to bother' as the net earnings/growth exceed your spending/withdrawals such that you're seeing wealth expansion anyway.
True but the compounding effects of 0.8% pa are brutal. Plus the fees for ETFs and other vehicles.

This is Europe, so fees are higher than America. But it should be possible to construct a portfolio with around 0.2-0.4% expense ratio. Using essentially global tracking ETFs.

The main thing that a DIY approach would lead you towards, which a PWM doesn't necessarily, is a chunky weighting in inflation-linked bonds.

With £10m one still needs a good tax accountant. So having a Private Bank doesn't remove that need.

I agree with other posters here that the OP should do *nothing* for a year. Just let things ride while they research and consult and plan. This is very analogous to winning the Lottery. A life changing sum, but it has to stretch for a very long time (70+ years in this case) so it's important not to make early mistakes.

(Caveat: the portfolio feels too aggressive to me. OP should have £1-2m in low risk investments. Either inflation linked bonds (which can be volatile) or bank deposit accounts, money market funds, short term bond funds).
User avatar
celia
Posts: 15155
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by celia »

I wouldn’t change anything until you’ve owned the current assets for a year and have paid taxes on your return. You need to understand all of the tax return(s) you will need to file and where the numbers come from, before you change anything.

I would ask the advisors to not change anything either. Even if you didn’t pay the 0.8% a year for managing the portfolio, the manager could “churn” the portfolio (buy and sell unnecessarily) and make money on the commissions. So you need to also learn abound all the ways they can collect money from you.
afan
Posts: 7110
Joined: Sun Jul 25, 2010 4:01 pm

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by afan »

As best I can tell, the OP has had this money for several years. Taxes will have been paid.

I agree that 0.8% would be too much to pay in the US. I do not know rates in other countries. It may be worth shopping for other banks that will do it for a lower fee.

Does the bank provide overall financial advice and manage taxes? This would make it a more valuable service, but still not likely to be worth the cost.

Great idea to find an hourly fee financial planner and see what they suggest.

If there are no capital gains taxes then getting out of the funds and stocks will not cost you. You could could talk with the bank and tell them you prefer a much simpler approach. The holdings may be a legacy from the prior generation. Perhaps that person liked what they had. In any case, you will learn a lot from their reaction when you suggest something simple.

I am curious about the alts. Depending on the details, they can be illiquid. You might be stuck with them for a while. If they are liquid alts, then I would get out, unless you will take a big loss doing so. In that case, you need to do some active management and try to predict the returns and risks for each holding.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
nyclon
Posts: 510
Joined: Fri Oct 02, 2015 5:30 pm

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by nyclon »

OP - it sounds like you’ve done your homework and you have a plan. That’s fantastic, congrats.

You can be your own financial adviser. You will need an estate planning attorney, CPA and insurance agent - as you point out, the bank is making intros to those people because that’s about all they can do now that your money is invested, so you may as well do it on your own.

If you want alts speak with vanguard on their harbourvest program which is relatively low cost and may be available in your locale.
Topic Author
CR7Siuuu
Posts: 9
Joined: Fri Feb 25, 2022 7:30 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by CR7Siuuu »

Thank you all for the replies.

I have had this windfall for a little over 18 months as things took so long to settle with the original estate.

I am in agreement for the next 1/2/3 years I'm going to spend my time getting educated further so I can one day manage this myself. At the moment, my current course of action is to keep spending low, keep squirrelling away money in my own portfolio and enjoy the ride.

I won't be paying 0.8% forever, that helps me sleep at night at least. The thought of paying that over a lifetime is sickening.
Topic Author
CR7Siuuu
Posts: 9
Joined: Fri Feb 25, 2022 7:30 am

Re: Large NW (£10m) due to inheritance, with private bank? Time to move?

Post by CR7Siuuu »

celia wrote: Fri Sep 23, 2022 4:33 am I wouldn’t change anything until you’ve owned the current assets for a year and have paid taxes on your return. You need to understand all of the tax return(s) you will need to file and where the numbers come from, before you change anything.

I would ask the advisors to not change anything either. Even if you didn’t pay the 0.8% a year for managing the portfolio, the manager could “churn” the portfolio (buy and sell unnecessarily) and make money on the commissions. So you need to also learn abound all the ways they can collect money from you.
This is a big one. I'll be speaking to them urgently about this as where I live there's no CGT so I'm sure they can sneak in buying/selling unnoticed to gather fees.
Post Reply